Manus Medical, LLC v. United States

In the United States Court of Federal Claims
No. 14-26C
(Filed Under Seal: March 10, 2014)
(Reissued for Publication: March 19, 2014) 1
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*
MANUS MEDICAL, LLC, *
*
Plaintiff, *
* Bid Protest; Small Business Set-Aside;
v. * Lowest Price Technically Acceptable
* (LPTA) Source Selection Process;
THE UNITED STATES, * Incomplete Proposal; Agency’s Use of
* the SBA’s Certificate of Competency
Defendant, * Procedures; Injunctive Relief.
*
and *
*
MARATHON MEDICAL, LLC, *
*
Defendant-Intervenor. *
*
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Eric S. Crusius, Centre Law Group, LLC, Vienna, Virginia for Plaintiff.
Joshua A. Mandlebaum, Trial Attorney, with whom were Stuart F. Delery, Assistant
Attorney General, Bryant G. Snee, Acting Director, and Patricia M. McCarthy, Assistant
Director, Commercial Litigation Branch, Civil Division, U.S. Department of Justice,
Washington, D.C., Bridget E. Grant, Department of Veterans Affairs, Of Counsel, for
Defendant.
Kristen E. Ittig, with whom was Dominique L. Casimir, Arnold & Porter, LLP,
Washington, D.C. for Defendant-Intervenor.
1
The Court issued this opinion under seal on March 10, 2014, and gave the parties one week to submit
any proposed redactions of competition-sensitive, proprietary, confidential, or other protected
information. The parties submitted their proposed redactions, which have been accepted by the Court.
Redactions are indicated by [. . .].
OPINION AND ORDER
WHEELER, Judge.
This bid protest raises the question of whether a procuring agency may cure an
incomplete proposal from a small business offeror by submitting the matter to the Small
Business Administration (“SBA”) for a Certificate of Competency. For the reasons
explained below, the Court finds that an agency cannot lawfully cure proposal defects by
submitting them to the SBA, and that the contract award to an ineligible offeror cannot
stand. Accordingly, the Court sustains Plaintiff’s protest, and permanently enjoins the
agency from proceeding with a contract that was illegally awarded.
Factual Background 2
This case arises from a Department of Veterans Affairs (“VA”) procurement for
custom surgical packs to be used at five VA Medical Centers in Denver, Colorado; Grand
Junction, Colorado; Salt Lake City, Utah; Cheyenne, Wyoming; and Fort Harrison,
Montana. Administrative Record (“AR”) 26. On August 24, 2012, the VA issued the
solicitation as a set-aside for Service-Disabled, Veteran-Owned Small Businesses. AR
23. Plaintiff, Manus Medical, LLC (“Manus”), and Defendant-Intervenor, Marathon
Medical, LLC (“Marathon,” or “MMC”) were among the six offerors who competed for
the award. AR, Tabs 15, 16. The solicitation contemplated the award of an indefinite
delivery, indefinite quantity (“IDIQ”) contract for a base year and four option years. AR
26. The VA intended to evaluate proposals and make an award by using a Lowest Price
Technically Acceptable (“LPTA”) source selection process. AR 88.
The solicitation contained nine components for determining Technical Capability
that would be evaluated on a Pass/Fail basis. AR 88-89. In order to be considered
technically acceptable, an offeror had to receive a “Pass” grade for all nine of these
components. AR 89. A “Fail” grade in any category would result in the offeror being
technically unacceptable and thus ineligible for award. Id. Of particular significance
here, two of the nine Technical Capability components were as follows:
H. (PASS/FAIL) – Has the offeror identified at least three (3) VA or other
Federal, State or Local Government customers for whom the offeror has
provided custom Surgical Packs described in this solicitation at any time.
This may include up to three commercial customers if government
2
The facts in this decision are taken from the administrative record. The pages in the administrative
record are numbered in sequence, and the documents are divided by tabs. The Court’s citations to the
administrative record generally are to the page numbers, except that large documents are referenced by
the tab number.
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customers are not available. The reference list shall include: customer,
office contact, telephone number, fax number, and email address, shall be
submitted in the proposal.
I. (PASS/FAIL) – Did the offeror receive at least a “satisfactory” rating on
each individual reference based on previous work to: comply with
schedules, training and skill levels of personnel accomplishing the work,
responsiveness to customer requirements, effectiveness at identifying and
correcting problems and overall satisfaction with service performance.
Id.
The VA issued five amendments to the solicitation between August 28, 2012 and
October 4, 2012 (AR, Tabs 7-11), and revised the submission date for receipt of
proposals to October 12, 2012 at 5:00 PM, Mountain Time (AR 179, 190). On or before
this due date, the VA received proposals from six firms. AR, Tabs 15-20. The VA
evaluated the offerors’ prices by adding the quoted price for the base year and each
option year. AR 1443. Marathon submitted the lowest price of [. . .], and Manus
submitted the second lowest price of [. . .]. Id.
However, in evaluating Technical Capability, the VA concluded that Marathon
failed components “H” and “I” quoted above, because Marathon did not submit the
names of any prior customers or references. In the Source Selection Evaluation Board
(“SSEB”) report, dated February 5, 2013, the SSEB stated:
Marathon Medical had the lowest evaluated price, but obtained a “FAIL”
rating in the “H” and “I” subfactors. Marathon Medical did not provide any
past performance sources in their proposal. . . . Since the solicitation was
clear that all factors must receive a “pass” rating, their proposal was found
non-responsive and eliminated from competition.
AR 1444. The VA determined that Manus received a “Pass” rating on all the Technical
evaluation factors, and thus was eligible for award with the second lowest price. Id.
Before making these determinations, the VA sent an Evaluation Notice (“EN”) to
Marathon, called a “FAR 15.306(a) Clarification,” asking Marathon if the three sources
required by section “H” under Technical Capability were mentioned in Marathon’s
proposal. AR 1436. Marathon responded by acknowledging that it “overlooked the
requirement of listing these entities on the RFP package [it] presented,” but listed four
references that it had asked to provide evaluations before the proposal submission date.
Id. None of Marathon’s sources provided the requested information in a timely manner.
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The VA also sent an EN FAR 15.306(a) Clarification to Manus asking to see
samples of “equivalent” components offered in response to the agency’s “Brand Name or
Equal” specifications. AR 1438. Manus complied with this request (AR 1439), and the
VA confirmed that all proposed components were equivalent (AR 1444).
On February 11, 2013, the Contracting Officer sent an Award Letter to Manus that
the President of Manus signed and returned to the VA on the same day. AR 1445-46.
The Award Letter indicated that the VA accepted Manus’s October 12, 2012 proposal,
and that the acceptance was contingent only upon approval from the VA’s Contract
Review Board, which was expected by March 1, 2013. AR 1446.
On February 27, 2013, the VA conducted a debriefing for Marathon in accordance
with FAR 15.505. AR 1457. The Contracting Officer explained to Marathon that it
received Technical Capability “Pass” ratings on all factors except “H” and “I,” and stated
specifically that “nothing was received” for these factors. Id. The Contracting Officer
also stated that “all offers submitted before the closing date were considered final and no
additional changes/additions could be accepted after that date.” Id.
On March 4, 2013, counsel for Marathon filed a bid protest at the Government
Accountability Office (“GAO”). AR 1458-70. Marathon challenged the VA’s
determination that Marathon’s proposal was technically unacceptable. Id. With regard to
the information called for in paragraphs “H” and “I” of the Technical Capability
requirements, Marathon argued that it provided this information in response to the VA’s
clarification request. Id. On June 4, 2013, the GAO ruled upon Marathon’s protest,
characterizing the agency’s follow-up communications with Marathon and Manus as
“discussions,” and recommending that the VA reopen negotiations with these offerors
and allow them to submit revised proposals. AR 1966-72.
On June 13, 2013, the VA informed the parties that it would comply with the
GAO’s recommendation, but on September 11, 2013 (AR 1973), the VA reversed course
and decided to submit the question of Marathon’s eligibility for award to the SBA for a
Certificate of Competency (AR, Tab 51). In its referral letter to the SBA, the VA’s
contracting officer stated “the offeror [Marathon] was found non-responsive to the
solicitation because they did not include the required previous source list required by the
evaluation factors.” AR 1981. However, in a letter of the same date sent to the GAO,
VA’s Office of General Counsel stated:
Where an offeror is a small business and an agency finds an otherwise
technically acceptable small business offeror to be unacceptable under a
LPTA pass/fail evaluation of responsibility-type criteria (here, the
responsibility criteria being the two factors under which Marathon
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“failed”), that constitutes a nonresponsibility determination that is required
to be referred to the SBA for a Certificate of Competency determination.
AR 2107.
On October 30, 2013, the SBA’s Area V office in Fort Worth, Texas issued a
Certificate of Competency for Marathon, making Marathon eligible for award. AR 2112.
On December 19, 2013, the VA made a new source selection evaluation finding that
Marathon passed all of the Technical Capability components, and selecting Marathon for
award as the lowest priced offeror. AR 2118-46. On January 2, 2014, the VA notified
Manus that it would not be accepted for award, and accepted Marathon’s proposal for
award, subject to approval by the VA’s Contract Review Board, expected by February 1,
2014. AR 2147, 2150. On January 10, 2014, Manus filed suit in this Court.
On January 22, 2014, the Government filed a two-volume administrative record
consisting of 2,152 pages. The administrative record contains the VA’s solicitation and
amendments; the six proposals received from offerors; the VA’s evaluation, source
selection, and debriefing documents; the record from the GAO protest; and the VA’s
correspondence with the SBA and the offerors. The parties have filed cross-motions for
judgment on the administrative record, as well as response and reply briefs. The Court
heard closing arguments on February 21, 2014, and the case is ready for decision.
Discussion
A. Standard for Decision
The Court has jurisdiction over this bid protest pursuant to 28 U.S.C. § 1491(b)(1).
In a bid protest, a reviewing court shall set aside an agency action that is “arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law.” See
§ 1491(b)(4) (adopting the standard set forth in 5 U.S.C. § 706). This standard is
satisfied when two conditions are met: (1) the procurement decision lacked a rational
basis or involved a violation of regulation or procedure; and (2) the protestor was
prejudiced by this error. Glenn Def. Marine (ASIA), PTE Ltd. v. United States, 720 F.3d
901, 907-08, 912 (Fed. Cir. 2013).
In the case of an agency’s decision to take corrective action, contracting officers
are afforded “broad discretion . . . where the agency determines that such action is
necessary to ensure fair and impartial competition.” DGS Contract Serv., Inc. v. United
States, 43 Fed. Cl. 227, 238 (1999) (quoting Rockville Mailing Serv., Inc., B–270161,
96–1 CPD ¶ 184, at 3 (Comp. Gen. Apr. 10, 1996)). Nevertheless, corrective action must
still be “reasonable under the circumstances and appropriate to remedy the impropriety.”
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Reema Consulting Servs., Inc. v. United States, 107 Fed. Cl. 519, 527 (2012) (internal
quotation marks omitted). In other words, the agency’s action must be rationally related
to the defect it purports to correct.
B. Analysis of the Merits
This is a relatively simple case made more complicated by some curious agency
actions following receipt of a GAO bid protest decision. Broadly speaking, the question
presented is whether the VA’s corrective action was reasonable. More specifically, the
question is whether the VA’s referral of Marathon’s incomplete proposal to the SBA for a
Certificate of Competency determination was proper, given the agency’s original
decision to exclude that proposal for failing to provide information explicitly required by
the solicitation. The answer, as explained below, is that there was nothing improper
about the VA’s original decision, and without any impropriety to remedy, the VA’s
corrective action cannot be defined as reasonable, nor can it be upheld.
1. The Original Procurement Decision
The starting point of this analysis is the VA’s original decision, which it
previously defended in the GAO protest as follows:
MMC acknowledged in its response to the EN sent to it that it
had overlooked [the past performance evaluation]
requirement. It is an offeror’s responsibility to submit a well-
written proposal, which clearly demonstrates compliance with
the solicitation and allows a meaningful review by the
agency. International Med. Corps., B-403688, Dec. 6, 2010,
2010 CPD ¶ 292 at 8. Further, with respect to VA’s refusal to
consider MMC’s late submittal of past performance
references . . . the solicitation clearly stated that failure to
submit complete information . . . may exclude the proposal
from further consideration.
....
MMC contends the FAR 15.305(a)(2)(iv) instructs that in
cases where past performance information is not available,
“the offeror may not be evaluated favorably or unfavorably
on past performance.” This FAR subsection is not applicable
here because MMC was not evaluated favorably or
unfavorably, it was appropriately found nonresponsive.
Furthermore, the past performance information would have
been available had it been submitted in a timely manner
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pursuant to the solicitation. Then, and only then, could MMC
receive an evaluation of its past performance. Proposals with
significant informational deficiencies may be excluded,
whether the deficiencies are attributable to either being
omitted or merely inadequate information addressing
fundamental factors. American Med. Depot, B-285060 et al.,
July 12, 2000, 2002 CPD ¶ 7 at 6-7.
AR 1621-22. The unfortunate reality here is that the VA’s first decision in this
procurement was correct, and the subsequent “corrective” actions have served only to
introduce error and confusion into an otherwise straightforward circumstance.
Understanding why this is so requires a review of the solicitation, Marathon’s proposal,
and the range of proper agency discretion upon receiving that proposal.
a. The Solicitation and Marathon’s Proposal
In general, when using the LPTA source selection process, award is “made on the
basis of the lowest evaluated price of proposals meeting or exceeding the acceptability
standards for non-cost factors.” FAR 15.101-2(b). Whether to include past performance
among these non-cost evaluation factors is left to the discretion of the contracting officer.
Id. In this specific case, the VA elected to include past performance. AR 82-83, 86, 89.
In addition, the solicitation clearly stated that the “Government intend[ed] to evaluate
offers and award a contract without discussions with offerors” (AR 84), and warned that
failure to submit complete information “may exclude the proposal from further
consideration” (AR 87). That is precisely what occurred. When Marathon failed to
include the required proposal information, it was eliminated from the competition. AR
1444.
b. Agency Discretion
Discretion, by definition, involves the freedom to choose between certain options.
Here, the issue is which options were available when the VA received Marathon’s
incomplete proposal. On the one hand, “where, in a negotiated procurement, an offeror’s
proposal does not comply with the solicitation’s requirements, ‘an agency is not required
to eliminate the awardee from the competition, but may permit it to correct its proposal.’”
ManTech Telecomms. & Info. Sys. Corp. v. United States, 49 Fed. Cl. 57, 71 (2001)
(quoting D & M Gen. Contracting, Inc., B–252282 et al., 93-2 CPD ¶ 104, at 2 (Comp.
Gen. Aug. 19, 1993)), aff’d, 30 F. App’x 995 (Fed. Cir. 2002). On the other hand, an
agency is also not obligated to open discussions to obtain missing information when it
discovers an offeror’s omission. Orion Tech., Inc. v. United States, 102 Fed. Cl. 218, 232
(2011), aff’d, 704 F.3d 1344 (Fed. Cir. 2013). Accordingly, Marathon “could not have
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had any expectation when it submitted its proposal that it would have the opportunity to
rectify proposal deficiencies through discussions.” Id.Nonetheless, the Government’s and Marathon’s arguments rest on the notion that
factors “H” and “I” are responsibility factors and, therefore, Marathon’s failure to submit
the required information mandates referral to the SBA. However, referral to the SBA is
necessary only “[u]pon determining and documenting that an apparent successful small
business offeror lacks certain elements of responsibility.” FAR 19.602-1 (emphasis
added). Such was not the case here, as Marathon’s lack of success was determined by its
deficient proposal, and the merits of its past performance were never evaluated because it
neglected to provide the information for evaluation. Thus, the critical distinction is
between failing a past performance evaluation and failing to submit the information
necessary for the agency to conduct such an evaluation.
Instructive in understanding this distinction is another GAO decision, Menendez–
Donnell & Assocs., B-286599, 2001 CPD ¶ 15 (Comp. Gen. Jan. 16, 2001). The
protestor, MDA, submitted a proposal that omitted some required information about its
experience and past performance, resulting in the rejection of its proposal as
unacceptable. One of MDA’s arguments was that the agency “should have referred its
technical unacceptability to the Small Business Administration (SBA) for review under
that agency’s certificate of competency program, citing Federal Acquisition Regulation
(FAR) § 15.101-2(b)(1).” Id. at 3. In denying MDA’s protest, the GAO “conclude[d]
that the agency reasonably found that MDA’s proposal failed to provide the information
required by the RFP to enable it to evaluate MDA’s key subcontractors”:
The information . . . was available, but MDA chose not to
present the information in its proposal, in direct contravention
of the terms of the RFP. In our view, an offeror cannot
simply choose to withhold past performance information . . .
where the solicitation expressly requires that the information
be furnished, and where the information is readily available to
the offeror.
....
[T]he reasons the agency found MDA’s proposal
unacceptable concerned only MDA’s failure to submit
information establishing its and its subcontractors’ experience
and past performance, and did not constitute a finding that
MDA is not a responsible prospective contractor.
Id. at 3 & n.1. This Court agrees with the GAO’s reasoning in the Menendez decision
and finds that two principles guiding that decision are worthy of amplification. First,
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offerors have an affirmative duty to submit a proposal that conforms to the explicit
requirements outlined in the solicitation. Second, submitting a proposal and evaluating a
proposal are two distinct steps, and failure at one step does not equal failure at the other.
In other words, finding that an offeror failed to submit required information for a past
performance evaluation is different from finding that an offeror is not a responsible
contractor. Applying those principles to this case, it is clear that the VA was well within
its discretion to reject Marathon’s incomplete proposal.
Moreover, even though Menendez involved a comparative evaluation of past
performance as part of a “best value” procurement, not an LPTA procurement, the
reasoning behind that decision is equally applicable here. When using the LPTA source
selection process, the contracting officer may “elect[] to consider past performance as an
evaluation factor.” FAR 15.101-2(b). Such an election, however, does not eliminate the
general contracting requirement to make an affirmative determination of responsibility
prior to every award. FAR 9.103(a)-(b). In addition to past performance, this
determination requires consideration of, among other things, a prospective contractor’s
financial resources, business ethics, organization, experience, accounting and operational
controls, and technical skills. FAR 9.104–1. Thus, an LPTA award can be understood as
proceeding in two broad steps: (1) evaluation and identification of the lowest priced,
technically acceptable proposal, which may include past performance as an evaluation
factor; and (2) determination of the apparent awardee’s responsibility, which must
include past performance along with other responsibility factors. That the evaluation is
made on a Pass/Fail basis does not alter the fact that it is a discrete step, or that
information is necessary to take that step. Accordingly, an offeror cannot reach the
second hurdle until it passes the first, and it cannot even reach the first unless it submits a
proposal that conforms to the solicitation’s requirements. Indeed, when an agency cannot
evaluate information because the offeror fails to provide it, the agency does not reach the
question of responsibility, and thus is not required to refer the matter to the SBA. Pacific
Sky Supply, Inc., B-215189 et al., 85-1 CPD ¶ 53, at 4 (Comp. Gen. Jan. 18, 1985).
In sum, Marathon failed to submit a complete proposal, and the VA retained
discretion to either reject the proposal or allow Marathon to correct its deficiencies. The
VA chose the former option, and, because this choice was a proper exercise of its
discretion, this proposal evaluation should have ended there. Unfortunately, resolution
would not come so easily.
2. The Corrective Actions
The logic of the VA’s actions began to unravel when the GAO sustained
Marathon’s protest of the initial award to Manus, and the VA took corrective action by
“allowing Marathon to provide the references it initially omitted.” AR 1972. Manus
9
filed a protest in the Court of Federal Claims, but that protest was rendered moot when
the VA implemented its second corrective action. See Manus Medical, LLC v. United
States, No. 1:13-cv-428 (Fed. Cl. Sep. 13, 2013) (“Manus I”). During oral argument,
counsel for the Government conceded that the first corrective action was erroneous, and
the Court concurs with that assessment.
Unfortunately, the second action turned out to be no more rational than the first.
As noted above, corrective action must be “‘reasonable under the circumstances’ and
‘appropriate to remedy the impropriety.’” ManTech Telecomms., 49 Fed. Cl. at 65
(citations omitted). In this case, there was no impropriety with the original award.
Marathon submitted incomplete information, and the VA properly exercised its discretion
in rejecting Marathon’s proposal because of its omissions. The agency error did not
occur until later, for referring an incomplete proposal to the SBA for a Certificate of
Competency determination does not constitute a proper exercise of discretion. Thus, the
irony of this procurement is that the VA’s only correct decision was its first one, and the
“corrective” actions it has taken since then have served only to lead matters further
astray.
3. Injunctive Relief
In deciding whether a permanent injunction is proper, the Court weighs four
factors: “whether (1) the plaintiff has succeeded on the merits, (2) the plaintiff will suffer
irreparable harm if the court withholds injunctive relief, (3) the balance of hardships to
the respective parties favors the grant of injunctive relief, and (4) the public interest is
served by a grant of injunctive relief.” Centech Grp., Inc. v. United States, 554 F.3d
1029, 1037 (Fed. Cir. 2009). Although no single factor is dispositive, “success on the
merits is the most important.” Blue & Gold Fleet, LP v. United States, 70 Fed. Cl. 487,
514 (2006), aff’d, 492 F.3d 1308 (Fed. Cir. 2007). That factor has already been
addressed above.
Under the second factor, the loss of a contract can constitute irreparable harm.
Honeywell, Inc. v. United States, 16 Cl. Ct. 173, 181 (1989), rev’d on other grounds, 870
F.2d 644 (Fed. Cir. 1989). In this case, Manus was the apparent awardee (AR 1445), and
its performance under the contract would have begun had it not been for the agency
errors described above. Consequently, this factor also weighs in Manus’s favor.
Third, the harm to Manus must be balanced against the harm to the Government
and to Marathon. See CW Gov’t Travel, Inc. v. United States, 110 Fed. Cl. 462, 495
(2013). As between Manus and Marathon, the balance generally weighs “in favor of the
protestor who has succeeded on the merits,” BayFirst Solutions, LLC v. United States,
102 Fed. Cl. 677, 696 (2012), and here there are no circumstances that counsel against
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that general rule. As between Manus and the Government, the latter argues that the
balance of hardships weighs in its favor because finding for Manus would delay award of
the contract, thereby costing the VA additional money to maintain its current level of
contractor support. Dkt. No. 23 at 24. This argument is unpersuasive for the simple
reason that the delay in award was not caused by Manus, but by the VA’s own errors.
The VA may not cause itself harm, then use that self-inflicted harm as a weapon against
an offeror that has done nothing but abide by the rules of the procurement process from
the very beginning.
This brings the analysis to the fourth factor, public interest. Here, the crucial
consideration is maintaining the integrity of the procurement process. According to the
Government, this factor weighs in its favor because enjoining the VA from contracting
with Marathon would undermine the authority of the SBA. Dkt. No. at 25. This
argument misapprehends the real issue in this case. The authority of the SBA is not in
question because the VA should never have referred the matter to the SBA in the first
place. Thus, the Court is not reviewing the SBA’s status as the final arbiter of
responsibility determinations; rather, it is reviewing the reasonableness of the VA’s
actions in managing the procurement process. Framing the issue in such a manner makes
the public interest consideration clear: “that there is an important public interest in fair
and open competition in the government procurement process.” Sys. Application &
Techs., Inc., v. United States, 100 Fed. Cl. 687, 721 (2011), aff’d, 691 F.3d 1374 (Fed.
Cir. 2012). When an agency “properly evaluate[s] the offerors’ proposals and render[s] a
source selection decision, its decision to take corrective action upsets a properly awarded
contract and therefore violates the laws meant to guarantee fair competition in
government procurements.” Id. at 719. This is precisely the error made by the VA,
which undermined its original proper evaluation with subsequent improper “corrective”
actions. The VA has already harmed itself in the process, but were its actions allowed to
stand, the wider-reaching damage would be to the integrity of the procurement process
itself.
Accordingly, the Court finds that injunctive relief is appropriate.
Conclusion
For the reasons set forth above, Plaintiff’s motion for judgment on the
administrative record is GRANTED. Defendant’s motion for judgment on the
administrative record is DENIED, and Defendant-Intervenor’s motion for judgment on
the administrative record is DENIED.
The VA is hereby enjoined from awarding Marathon a contract, or permitting any
performance of a contract by Marathon, under Solicitation VA259-12-R-0078 based on
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the VA’s prior corrective actions. Any party wanting to challenge any future VA action
under this solicitation or a related solicitation may file a new action in this Court and
designate it as a directly related case to be assigned to Judge Wheeler.
IT IS SO ORDERED.
s/ Thomas C. Wheeler
THOMAS C. WHEELER
Judge
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